What is a credit score? Why is it important? What credit score should I aim for? Does my credit score limit my home buying options?
Your credit score is a three-digit number that is used to determine how well you manage credit and if you make payments in a timely manner. This number is usually calculated on the 300 to 850 Fair Isaac Corporation (FICO) scale, and the higher your score is, the more likely you will be approved for a loan or mortgage.
Yes! It is so easy (and free) to check on your credit score, and it’s a great habit to get into so that mistakes don’t slip through and negatively affect your score. It’s also a good way to track your progress if you are trying to rebuild your credit score.
While a perfect credit score is a great thing to always aim for, you can still get low interest rates on your mortgage with a less than perfect one. In fact, the difference in interest rates between an 800 and 850 credit score is minimal.
Credit scores are constantly changing, so even if you don’t have a perfect one now, or perhaps you do, there is no guarantee that it will stay that way. So instead of focusing on keeping the same perfect score, it is best to develop and maintain healthy credit managing habits.
There are multiple ways to improve your credit score, but none of them are quick. The point of a credit score is to see healthy credit managing, and that can’t be observed quickly. Quick-fix attempts can actually end up causing more harm than good. Instead, develop a strategy that involves things like timely payments and spending much less than your credit limit allows.
A down payment is the sum of money you pay upfront when you are purchasing a home.
It is usually only a percentage of a home’s purchase price, with the remaining balance met by combining the down payment with a home loan.
Usually the down payment amount is dependent on the loan program you get. Typically, you will want to save anywhere between 3-20% of the home’s sale price in order to qualify for a 30-year conventional loan, but the higher the percentage the better. If you put down less than 20% you might be required to pay mortgage insurance.
Popular alternative loan options will accept 3.5% (and lower) down payments. The most common of these loan options comes from the Federal Housing Administration (FHA) which you can qualify for with only 3.5% down and a good credit score.
Some can also meet eligibility requirements for the Veterans Affairs (VA) loan which has a zero down payment. In addition to these there are both state and local programs to help assist home buyers who want to obtain loans with low down payments.
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